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It is a longstanding task to invigorate the economy by redirecting households’ financial assets, which are heavily weighted toward savings, to investment. It is hoped that the planned review of the Nippon Individual Savings Account (NISA) investment scheme will be an effective measure that also leads to individual asset-building.
As for the NISA system, in which a tax exemption is applied to profits accrued from small-lot investments, the Financial Services Agency (FSA) called for, in its request for fiscal 2023 tax system revisions, abolishing the limit on the system’s duration to make it permanent, as well as raising the investment caps. The ruling parties’ tax research panels, among others, plan to discuss specific measures.
In a speech in Britain in May, Prime Minister Fumio Kishida announced the formulation of a “Doubling Asset-based Incomes Plan.” The reform of the NISA scheme will be a pillar of his plan.
In Japan, households’ financial assets total over ¥2 quadrillion, with cash and deposits accounting for more than half of that amount, while the share of stocks is lower than in the United States and European countries.
It is understandable that the government aims to channel household funds to companies through the stock market to help boost economic growth.
Supporting individual asset-building is also important. In Japan, where public finances have deteriorated, people’s distrust of the pension system persists, which is said to be one factor behind sluggish consumption. The NISA scheme is intended for small-lot investments, thereby benefiting the non-wealthy middle class as well.
Also, in Japan, as elsewhere, prices are rising. In times of inflation, financial assets kept in cash will diminish in value. It can be said that investment is becoming increasingly important.
The NISA system was established in 2014. Under the scheme, the about 20% tax on capital gains and dividends from stocks, mutual funds and other financial products is waived for a certain period of time.
There are three types of NISAs — the general NISA, which offers tax breaks for five years on investments of up to ¥1.2 million per year; the savings-type NISA, a savings plan with a tax-exempt period of 20 years; and the junior NISA for those aged under 20.
It was decided that the general NISA system would be revamped from January 2024, but the FSA has been leaning toward holding off on this plan due to strong discontent from the securities industry, which cites the complexity of the system.
Instead, the FSA requested that the three different NISAs be consolidated into the savings-type NISA, which is intended for mutual funds, and this system, currently in place as a temporary measure until 2042, be made permanent. The agency also said it will create a “growth investment quota,” which will allow people to invest broadly in stocks and other financial products within the investment cap.
It is essential to make the system easy to understand and easy to use. As one of the principles of investment is self-responsibility, the government and financial industry must tell people that investment also involves risks.
On the other hand, if tax breaks become too large, low-income earners, who have no spare money for investment, might criticize the NISA scheme as one that foments disparity. Measures to mitigate people’s anxiety about the future, such as social security system reform, should be discussed in parallel.
